Tuesday, December 22, 2009

CO2 Emissions and Taxes

The big problem at Copenhagen was the difficulty in getting the US and China to agree on sharing the burden of reducing CO2 emissions. The problem is the difference between size of country and size of income. China produces slightly more CO2 than the US (data is for 2006), perhaps 9%, but in per-capita terms the US produces 4 times as much. But the US is also ten times wealthier in per-capita terms. So if we calculate tons of CO2 emitted per unit of per-capita GDP, the figure for the US is 133,680 and for China it is 1,358,217. That is, we emit about one-tenth that of China per unit of per-capita income. This means that if the US and China were to reduce emissions by one million tons, and if the efficiency of production is unchanged, then US per-capita income would fall by about 13 cents, and Chinese per-capita income would fall by $1.36. So the incidence of the "tax" on emissions would be ten times higher on the average Chinese person than on the average American.

If we think of this as taxation then a fair way to share the burden might be to have a flat tax per unit of per-capita income. Then we ought to face an emission target ten times higher than China. Of course, if we believe in progressive taxation our tax rate ought to be even higher.

Before setting tax rates one ought to consider where are the greatest gains for reducing emissions -- that is efficiency gains that do not reduce GDP. Is that in China or the US? This could go either way, I suppose. One could argue that China has less efficient plants, so easy fixes are available since they have regulated less. But it may also be the case that it is easier to implement many technological fixes in the US than in China. My guess is that the efficiency differences are unlikely to be of the same order of magnitude as these income differences.

1 comment:

s said...

"So if we calculate tons of CO2 emitted per unit of per-capita GDP, the figure for the US is 133,680 and for China it is 1,358,217. That is, we emit about one-tenth that of China per unit of per-capita income. This means that if the US and China were to reduce emissions by one million tons, and if the efficiency of production is unchanged, then US per-capita income would fall by about 13 cents, and Chinese per-capita income would fall by $1.36. "

Wrong. If first statement is true then the opposite of last statement is true. :)